Short-term bonds can be attractive for investors worried about rising interest rates. These short-term bond funds will help investors get the best exposure to this sector. To screen for the top-performing funds in this category, we looked for those with the best returns over the last one-, three-, and five-year periods. All names that passed the screen were actively managed.
Short-Term Bond Funds Performance
- Calvert Short Duration Income Fund CDSRX
- Guggenheim Limited Duration Fund GIKRX
- Neuberger Berman Short Duration Income ETF NBSD
- PGIM Short Duration Multi-Sector Bond Fund SDMQX
Over the last 12 months, short-term bond funds have returned 5.10%. On an annualized rate, short-term bond funds have returned 4.77% over the last three years and 2.17% over the last five. That compares with the Morningstar US Core Bond Index, which has returned 2.54% over the last 12 months, gained 2.69% per year over the last three years, and lost 0.73% per year over the last five years.
What Are Short-Term Bond Funds?
Short-term bond portfolios invest primarily in corporate and other investment-grade US fixed-income issues and typically have durations of 1.0-3.5 years. These portfolios are attractive to fairly conservative investors, because they are less sensitive to interest rates than portfolios with longer durations. Morningstar calculates monthly breakpoints using the effective duration of the Morningstar Core Bond Index in determining duration assignment. “Short term” is defined as 25%-75% of the three-year average effective duration of the MCBI.
Screening for the Top-Performing Short-Term Bond Funds
To find the best short-term bond funds, we looked at returns from the past one, three, and five years using data in Morningstar Direct. We screened for open-ended and exchange-traded funds in the top 33% of the category using their lowest-cost primary share classes for those periods. We also filtered for funds with Morningstar Medalist Ratings of Bronze, Silver, or Gold. We excluded funds with assets under $100 million and analyst coverage that was not 100%. This left four names.
Because the screen was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors outside of retirement plans, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. In addition, Medalist Ratings may differ among the share classes of a fund.
Calvert Short Duration Income Fund
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★★★
Over the past 12 months, the $2.7 billion Calvert Short Duration Income Fund rose 5.79%, while the average fund in its category rose 5.10%. The Eaton Vance fund, launched in February 2019, has climbed 5.91% over the past three years and 3.39% over the past five.
“Calvert Short Duration Income Fund strengthens its position in the short-term bond Morningstar Category with a Process Pillar upgrade to Above Average.
“The strategy takes on more credit risk than most short-term bond category peers, with corporate and non-government-related securitized credit making up around 75% of the portfolio. This approach may lead to occasional underperformance, but it is not inherently faulty. The team employs a mix of bottom-up fundamental analysis and top-down asset allocation to an opportunity set screened for favorable sustainability characteristics.
“As of Feb. 28, 2025, the fund’s performance has been solid, with returns for all standard trailing time periods landing in the top quintile of its distinct category peers. However, it’s important to note that these returns have been achieved with above peer-norm realized volatility. While short-term, sharp downturns like the covid crisis have occasionally resulted in deeper drawdowns, the fund’s maximum drawdown over longer periods has remained close to the category median. The fund’s credit-biased approach has led to a performance record that aligns with expectations, but potential investors should be aware of the increased volatility.”
—Maciej Kowara, principal
Guggenheim Limited Duration Fund
- Morningstar Medalist Rating: Silver
- Morningstar Rating: ★★★★
The $5.4 billion fund has climbed 5.35% over the past 12 months, performing roughly in line with the average fund in its category, which rose 5.10%. The Guggenheim fund, launched in March 2019, has climbed 5.59% over the past three years and 2.89% over the past five.
“The team operates within a distinctive framework. It segments decision-making among groups focused on sector research, macro research, portfolio construction, and portfolio management, and boasts a deliberate, slowed-down process to avoid mistakes. The size, depth, and quality of the work done by the corporate credit team, which rolls up to the analysis of many securitized issues, is a critical complement to the efforts of its 20-strong structured-credit group, as well.
“The approach of exploiting inefficiencies among out-of-benchmark bonds has historically meant a large mix of securitized fare here. In late 2015, the fund had more than 70% in a mix of midquality collateralized loan obligations, nonagency mortgages, and commercial mortgage-backed securities. After bringing that exposure down and up over the following years, the team cut risk in 2018 and 2019, leaving the fund lagging during the latter. That saved the portfolio from worse damage during the 2020 coronavirus-driven selloff, though, and the team quickly pivoted back, adding risk before the market bounced back. They had further cut risk by the end of 2024, trimming holdings in the aforementioned mix of securitized debt to 24%—in large part based on valuations—and lower exposure to corporates across the quality spectrum.
“The fund benefited from more risk-taking in its earlier years, but it has navigated 2022, 2023, and 2024 well enough to drive top-quartile returns for all of the standard trailing periods and Walsh’s tenure since the end of 2013.”
—Eric Jacobson, senior principal
Neuberger Berman Short Duration Income ETF
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★★
Over the past 12 months, the $360.6 million fund has gained 5.55%, while the average fund in its category is up 5.10%. The Neuberger Berman fund, launched in June 2010, has climbed 5.58% over the past three years and 3.03% over the past five.
“Neuberger Berman Short Duration Income ETF is an attractive option for short-term bond investors in search of extra yield. Converted from a legacy mutual fund in June 2024, this offering is part of Neuberger Berman’s foray into active fixed-income exchange-traded funds. Though the mutual fund’s record extends nearly four decades, the team has managed it in its current form since a 2019 mandate tweak. In the time thereafter, the strategy has consistently been among the highest-yielding funds in the short-term bond Morningstar Category. The managers prioritize generating attractive income levels, and do so largely by allocating across short-dated corporate and securitized credit depending on relative value opportunities.
“The strategy’s strong income generation has driven a compelling relative performance profile both before and after its 2024 conversion into an ETF, especially for investors willing to stomach some extra volatility. Indeed, the strategy’s 2.91% annualized return between August 2019 and July 2025 edged more than 75% of distinct short-term bond category peers. Still, the managers will have to prove themselves over a longer period with respect to navigating the liquidity challenges associated with ETFs, particularly given some of their allocations to less liquid tranches of securitized credit.”
—Max Curtin, analyst
PGIM Short Duration Multi-Sector Bond Fund
- Morningstar Medalist Rating: Gold
- Morningstar Rating: ★★★★
Over the past 12 months, the $6.9 billion PGIM Short Duration Multi-Sector Bond Fund rose 5.9%, while the average fund in its category rose 5.1%. The PGIM fund, launched in December 2013, has climbed 5.74% over the past three years and 2.84% over the past five.
“PGIM Short Duration Multi-Sector Bond has produced higher volatility than its average short-term bond Morningstar Category peer but has shown it can produce enough return over the long haul to make up for it.
“The group also oversees PGIM Total Return; the main difference between the two strategies is their respective benchmarks. This one uses the Bloomberg US Government/Credit 1-3 Year Index, while PGIM Total Return employs the longer-duration Bloomberg US Aggregate Bond Index. It has been more muted since, but this fund’s duration (a measure of interest-rate sensitivity in years) has often run longer than its own bogy, until 2022 often ranging between 2.2 and 2.8 years, placing at the long end of its short-term bond category. Everything else about this strategy is similar to its sibling’s—including its tracking error risk budget of 250 basis points, albeit versus a shorter-maturity benchmark.
“That gives the portfolio a lot more flexibility than most rivals, helping explain why it has been among the category’s most successful—and most volatile. Going into the early-2020 coronavirus-driven selloff, for example, the portfolio had 8% exposure to high-yield, 10% of assets in emerging markets, and around 45% in a mix of securitized credit assets that had a rough ride. The strategy’s mutual fund Z shares fell more than 9% from Feb. 20 through March 23, 2020, before mounting a strong comeback.
“That period was an outlier, though, and while the strategy has been more sensitive to selloffs than most peers, that pain has rarely been as severe. For example, as Russia’s invasion of Ukraine and the Fed’s rate hikes sent shockwaves through markets during 2022’s first quarter, the Z shares’ 3% loss was only slightly worse than the median 2.7% drop among its distinct peers. Its returns over the typical trailing periods as of Dec. 31, 202,4 all placed in or near the short-term bond category’s best quartile and have placed similarly on a volatility-adjusted basis as measured by its Sharpe ratio (a measure of excess return relative to excess standard deviation).”
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